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On October 4, 2004, President Bush signed the Working Families Tax Relief Act of 2004, which extends various personal income tax reductions for middle-class taxpayers that had been scheduled to expire. The act also extends several business-related provisions that had been scheduled to expire at the end of 2004 and 2005.
Child Tax Credit
The child tax credit, $1,000 for 2004, was scheduled to revert to $700 for 2005 through 2008, increase to $1,000 by 2010, and then revert to $500 under the sunset provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001.
The new legislation retains the child tax credit at its 2004 level of $1,000 for 2005 through 2010. The act also accelerates the increase in refundability of the child credit to 15% of the taxpayer's earned income in excess of $10,750 (with indexing) for 2004. (This provision was not scheduled to go into effect until 2005.)
In addition, the act allows taxpayers to treat combat pay that has been excluded from the computation of gross income under IRC section 112 as earned income for the purposes of computing the refundable portion of the child tax credit. The child tax credit, along with its refundability, will still sunset after 2010.
Standard Deduction and Tax Brackets
Under the 2001 Tax Act, the basic standard deduction for joint returns was to increase over a period of years from 167% of the basic standard deduction available to single taxpayers to 200% in 2009 and 2010. The new legislation accelerates the increase of the basic standard deduction for joint returns to 200% of the basic standard deduction available to single taxpayers from 2005 through 2010. After 2010, the basic standard deduction for joint returns will revert to 167% of the basic standard deduction available to single taxpayers, as per the original sunset provisions.
Under the 2001 Tax Act, the bracket available to joint filers was to increase over a period of years from 167% of the width of the 15% available to single taxpayers to 200% of the width of the 15% bracket available to single taxpayers for 2008 and 2010. The new legislation accelerates the increase of the width of the joint filers' 15% bracket to 200% of the width of the 15%...